With the cost of bank bailout fears flaring up again last week in Ireland combined with a weaker than expected drop in Q2 GDP in Greece, and general risk aversion seen in the rally in Treasuries and Bunds after the FOMC meeting and weak US economic data, Greek asset prices are again pointing to trouble. This week the Greek 2 yr yield at 10.71% has risen 60 bps, is higher by 120 bps over the past 2 weeks and is approaching the 10 yr yield of 10.77%. Greek 5 yr CDS is at 895bps, up 75bps on the week and 140bps in two weeks. It now exceeds Argentina again and is now only below Venezuela. What is most worrying about the action in their 2 yr is that the EU has in place a 3 yr 110b euro bailout package for Greece, fully covering all of their debt obligations during this time. The market clearly has worries still that a debt restructuring is the inevitable outcome. Greek stocks closed down on the day 3.5% to a 4 week low.

Category: MacroNotes, Uncategorized

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Greece still an issue”

  1. ToNYC says:

    Not Savings Banks, but Saving the Bank’s face.
    Did I just hear con nbc that Tim Geithner worked for Kissinger Associates from 1985-88?
    In Japan mode, only the Banks survive the asphyxiation result of the credit vacuum that requires.

  2. obsvr-1 says:

    how could it not STILL be an issue, they were broke (insolvent) – ECB bought more of their debt (bailout, delay the inevitable) – nothing has changed to indicate they will be able to pay down the debt and at the interest rates they have to pay it is only matter of time before restructuring will have to occur.

    California and a bunch of other states seem to be on the same trajectory.

  3. I think it’s funny(but not really) that the media can call it a crisis and in a couple months expect it all to go away with the next spin of the news cycle. Either they need to get re-educated on the word crisis and its impact or focus on matters more flippant in order to satisfy their need to ‘wrap things up’ in sit com efficient ways

  4. obsvr-1 is exactly correct when he (she?) says, “California and a bunch of other states seem to be on the same trajectory.”

    Like the EU nations (except for the UK), California is not monetarily sovereign. Any political entity that is not monetarily sovereign must receive inputs of money from outside. California, and all the other U.S. states, counties and cities, none of which are monetarily sovereign, must repeatedly receive money either from the federal government or from exports.

    It is 100% impossible for a non-monetarily sovereign entity to survive solely on internal taxation.

    Rodger Malcolm Mitchell

  5. machinehead says:

    Counterexample for Rodger Mitchell: Hong Kong ran a currency board, linked to the US dollar, since the early 1980s. Hong Kong had no monetary sovereignty, but thrived. Panama is dollarized (no monetary sovereignty), but gets along alright.

    California’s problem is fiscal profligacy, not lack of monetary sovereignty. WITH monetary sovereignty, California probably would rival Venezuela for runaway inflation, devaluation and default risk.

  6. The reason a non-monetarily sovereign nation cannot survive on internal taxes alone has to do with mathematics. A non-monetarily nation cannot create new money at will. Without new money creation, and with no money coming in, the total value of money in the nation erodes due to inflation. Further, to grow, a political entity needs an increasing money supply, not just a static money supply. This is not theory. It is simple fact.

    I always struggle when people toss me foreign countries as examples of something, because I never know enough about those countries, and I sometimes suspect the “tosser” doesn’t either. As for Panama, I looked them up in the Encyclopedia of Nations which said, “Panama’s adverse balance of trade is largely made up by invisible foreign exchange earnings from sales of goods and services in the Colón Free Trade Zone and from the Panama Canal. Nonetheless, Panama has had one of the highest amounts of goods and services export earnings in the region, relative to GDP.

    As for Hong Kong, it has had a continuing and massively positive balance of payments.

    There is no doubt California has mishandled its finances. But even with perfect handling, they could not survive on taxes alone. They need exports and/or help from the federal government, for the reasons explained in the first paragraph.

    Rodger Malcolm Mitchell